Archive: Viral Social Commerce

Reflecting on the current discussions, last at the Delphi Executive conference in Bonn, and at CeBIT which I both attended as a speaker, I recalled the very lively panel at DLD 09 around online video and social media. If you are interested in the topic, the video gives you insights with Brightcove, Endemol, sevenload and Termor Media and a great moderator, David Kirkpatrick from Fortune Magazine.

About the specifics of how we perceive the value of recurring WebTV Content, please check my Interview at ETRE in Stockholm:

In my previous post, I tried to describe what I call viral social commerce as the commercial dimension to Web 2.0. This Blog entry will focus on the opportunities and strategic demands that viral social commerce presents to existing companies- especially such companies that have a dominant position in their market. If viral social commerce describes an increasingly commercial nature to the interaction presented by users on the web, then this has deep implications for a relationship between companies and their customers.

On the communication level, much has already been written about the need for companies to go from a broadcast model to an interactive/interaction model, and many companies have already experimented with blogging, viral marketing and other forms of “Web 2.0 marketing”. So far, these endeavors have been met with mixed success. This has a number of reasons- which I will try to sum up in 3 axioms:

1) A day still has only 24 hrs, and our wallets have not gotten fatter.

What this means, is that for all the novelty and increased value in communication that Web 2.0 methods can create in their relationship between customers and companies, engaging in these for more than a fleeting moment of curiosity will require any customer to make a sacrifice of both time and effort to the detriment of something else they’d rather be doing. What this means is that you need axiom number 2.

2) Real people seek real value.

Axiom number 2 is probably the central answer to any strategic or implementation question connected to any type of new technology. Technologies do not usually fail because of technical questions, in fact, the success of technologies is often independent of the quality of the technology involved or its implementation- in other words, abject products are sometimes more successful than perfect technologies (the old, if not entirely true, Microsoft – Apple adage).

Technologies do fail however, when they do not meet a market in a way that creates significant value for a significant value for a significant segment of potential customers. This is the Holy Grail of start-up and business success and it has often been described and is easily worded, but hard to execute.

So cutting back on Web 2.0 technology by seeking not a mash-up of all the functionalities that happen to be the talk of the town and instead looking for ways to create real value with Web 2.0 technologies requires, first, an analysis not of Web 2.0, of these technologies or even of the Web 2.0 early adopter crowd. Much rather, it requires a thorough analysis of the existing market, existing distribution communication channels in those markets and existing or potential customer segments. Then and only then, but then with the strongest impact, can the potential, use and value of a specific Web 2.0 technology be found. This is where competitive advantages are born. This leads me to axiom number 3.

3) Innovation begins with a thorough understanding of the existing weaknesses of the existing market.

This attitude best summarized and methodized in the book Blue Ocean Strategy by Chan Kim and Renee Mauborgne. This approach is at the core of most technological successes and I am more than certain that in the existing wave of new start-ups, those start-ups will succeed which have best understood this lesson.

For companies in existing markets, this means that hunting for the weaknesses of their own methods of communication, of production and sourcing, and of other interaction (for example, service interaction with their customers) and then hunting for solutions to these weaknesses which were before impossible, but can now be enabled by Web 2.0 technologies, is the key to success.

You may find that direct communication with customers or sourcing in of product or feature feedback from customers was, until now, on a snail mail or even E-mail or call center paradigm, impossible to manage efficiently and to link back to the production and design process for some products. In the environment of a web 2.0 community and / or user to user communication interface, this sourcing process, suddenly becomes manageable because of the combination of ratings, feedback and systematic analysis in a technology-enabled low-cost framework. At the very least, such a platform will bind your most active customers.

The task of sifting through all the feedback and identifying the most valuable feedback from customers now does not have to be preformed by the organization alone, but can be delegated at least in part to the community- and this can apply to almost any market.

In the following model, I’ve tried to sum up the paradigm shift that this entails for companies in existing markets. Until now, you had the classic paradigm of production and product identification followed by (retail) marketing and distribution, and the cherry on the top was communicating to customers through combined PR and advertising.

On all levels of that process, a redefinition can now take place by including interaction with customers. At the very least, the communication/advertising end of the classic model of value creation within the business organization can undergo a paradigm shift from communication to interaction that links back into the organization. This is exemplified in the drawing below- and creates a whole new set of requirements for the company including, for example, new tracking tools, new analysis tools and a new mindset in marketing. Marketing then becomes not just a communication task but becomes much more a framework for the company’s role as the

host of a community of customers.

These are the concepts that we’ve been working on for years now at denkwerk and which we try to reflect in our everyday work for our clients, such as Nokia, Obi and other retail giants. This paradigm shift leads to surprising successes each time the department of the company we are working with and we are mandated to not only think, but also act in a radically different way.

These past months have, in a way that I would not have thought possible, created a start-up market situation closely resembling a certain period in time that we had in 1999. A number of new start-ups have sprung up that stem from what I call “feature-itis”, that is: their main business idea is not the creation of a value that addresses a particular market in a way that is commercially feasible, but much more the “hey- wouldn’t it be cool if it were possible to do this or that on the web” impulse.

If you sift through the business history of the first and second wave of the internet and try to analyze which companies ended up being successful, which companies were moped up as additional features to Yahoo! and bought out, and which companies simply failed, you find out that at the end of the day it’s not at all about a new economy, it’s about very old principles of

in the widest sense of price, that is: convenience, access, time, budget and eventually price in dollars.

If we now look at what I like to call Web 3.0, that is, the commercial maturity of the social phenomena that we are observing with Web 2.0, then remembering that business history and applying the method of identifying customers for a market that are prepared to pay a given price, is a healthy mental exercise.

You’ll allow me to refer to myself and my earlier Blog entry about the distinction between Web 1.0, Web 2.0 and Web 3.0 and briefly describe Web 2.0 as the discovery that the internet is not only a repository for information and data, and a network through which e-mail and chat communication can happen, but has become a medium where

the human source of information

and human source of opinion and entertainment becomes as accessible as the data that he/she has created, that is at the core of the Web 2.0 social revolution. And as any revolution, it creates a whole new set of social behavioural changes, business opportunities, political implications and essentially an entirely new medium- which incidentally is not only confined to the Blog or Social Network phenomenon.

Stating these now commonplace insights into Web 2.0 leads me to reflect upon the Web 3.0 phenomenon, that is the commercial viability of all of these changes. As described in my Blog entry, I believe strongly that this will be the era where the source of data and information, and essentially this means the

human individual as a source of expertise,

can more and more market that expertise in many different ways- either

- by being accessible as an expert or
- by offering more in depth information or
- services related to the information
- transactions / products related to the information

for any kind of currency (this may be a social reward or a commercial reward/payment) in a variety of models that can range from subscription to micro-payments or even other forms of transaction that we may not yet even imagine (my informed hunch is “subscription” will mean many different rental models that are being imagined right now). As of now, the main focus of business endeavour in the Web 2.0 to Web 3.0 transition era, is to create and monetize exactly these kinds of platforms- much in the way that sevenload is doing for the video world.

In the future, business focus will be to harness the technologies, communication methods and social behaviour of Web 3.0 to create new value and new markets, thereby disrupting existing business structures. Increasingly, this will be achieved by individuals and small companies rather than larger companies.

The challenge is to identify these markets beyond advertising. If we look at what is happening right now in the Web 2.0 sphere, it is essentially one giant cannibalization of the editorial market, trying to supplement old media and replace them with “Facebook-”, “MySpace-”, and “YouTube-” (new) models of broad- and selfcasting and interaction with the user. That will, of course, be successful, but it is hardly imaginable that more than a productivity or effiency increase of more than 25-35% (maybe even 40% or 50% through better targeting) with relation to the advertising market can be sustained.

Even more market volume may be created by opening the advertising market to new segments that, until now, had a high cost barrier towards advertising, for example in the Long Tail of smaller and mid-sized companies, or in niche markets which had to rely on direct marketing because there was no medium for them to address at sales efficient cost on a large scale.

This disruption of the advertising marjet is of course fueled by the radically changed cost-dynamics of Web 2.0 platforms and the possibility to address the long-tail of content and offering highly specific audiences to as specific advertisers.

This opening of niche markets for advertising may one day – probably soon to come – come as far as user groups and communities centered around exotic topics such as the nuts and bolts of drilling joints (or something similar).

But by and all, if advertising is the only focus of what is happening right now, there will inevitably be a crunch at the moment of realization that there is just not enough money in these markets to create hundreds of new billion dollar companies. Even though a return to the Nuclear Winter of The Internet of 2001-2003 seems unlikely, it is highly probable that we will have a structurally similar shake-down and that just one or two more Yahoo!(s) or Google(s) will crop up, having found the holy grail of

on-demand fully trackable horizontal niche long tail CPA advertising

By the way, addressing that advertising market will also have to overcome a formidable opponent which is very well positioned to address the long-tail of advertising, and that is Google.

My point in this Blog post is that there have to be, and there will be business models beyond advertising and they are starting to emerge. Essentially these will be transaction based and will be centered either around the handling of goods in an e-commerce sense (that is already being seen in a number of start-ups) for example, by itravel, but there will also more and more be transaction platforms centered around services, much in the sourcing logic mentioned above.

The sum of these developments is what I call “viral social commerce”. It is viral in the sense that its dynamics of growth/expansion are very much word-of-mouth and very much based on the social phenomena of Web 2.0.

*I might add, that these phenomena are not new, word-of-mouth has always been the most powerful marketing instrument, it’s just that technology has enabled it to travel at light-speed, where before it was at a horse carriage pace.

It is social in the sense that, not only communication, but also increasingly parts of the production process and the definition of the product/service offered will be defined not by an entity that is producing it, but rather by a group of people or a community that adds a significant part of the value that is being created. An example for that is again itravel, where the travel community creates a lot of the product knowledge and even product sourcing that is necessary to create its catalogue of once-in-a-lifetime-experiences. Another example is ChariTees, where the community sources not only the designs, but also decides which designs will appear on t-shirts and also decides which institution would benefit from that part of the proceeds of ChariTees that is being spent on charity.

The commerce part of the “viral social commerce” idiom, reflects on what I was describing at the beginning of my post, namely that this is more than a social communication phenomenon and it is also more than pure interaction, it is in essence a whole new commercial dimension to what happens in our increasingly web-enabled society.

Viral social commerce is, for me, the essence of what will happen with Web 3.0. In my next post, I will describe how companies can confront this development and attain competitive advantages by harnessing them.

As always, that’s a difficult discussion. First of all it’s important to remember that “Versioning” the web is initially a marketing trick, albeit a powerful and a valid one. It does make sense to try to assess the pace and scope of change in and through the Digital Revolution. In our internal discussions at http://www.denkwerk.com we differentiate the technical, the social and the business levels of analysis. Our very broad clusters are as follows:

Web 1.0:
It is particularly inexact to retroactively dub the pre-2004 era as „Web 1.0“, since that is a rather vast period of time which underwent different phases in itself. When did it start? With Tim Berners-Lee & the appearance of Mozilla in 1993? With the first Social Network (sic!), the Well, in the 1980s?, With the ARPANET in 1968?

Tim O’Reilly coined “Web 2.0” as a call to reconsider the then ruling technical paradigms and the generalized underestimation of the social and economic impact of the internet in post-bubble headache times. But the 90s, the bubble, and 2001 – 2003 constitute a wild rollercoaster of different developments. In our view in short:

Technology:
The first simple websites evolved to more and more interactive, from static to dynamically generated, from handcrafted to cms-driven, from pure media to more and more transactive, and these vast increases in value remained through independently of the vast hyperbole of expectations that the New Economy and Irrational Exuberance engendered. In software paradigms though, simple web development and early script-based architectures and languages were supplanted by Enterprise Application thinking, the advent of web services, and the JAVA Revolution. After 2001, you were a wimp if you stuck to PHP.

Social:
Mostly Early Adopters went from discovering the web and portals as sources of information to accepting shopping, then dating and other increasingly interactive services and transactions.
The Internet, however, was never “lean-back”, a prerogative of TV.

Business:
The only really working business models (at high volumes) were
a) lead generation for existing brick and mortar business (“click and mortar”)
b) Online Advertising (mostly banner, after 2002 more and more search engine marketing)
c) E-Commerce (online sales, B2C or B2B )

BTW: Many ideas that now resurface in Web 2.0 were imagined just then, but failed because user behaviour and markets weren’t there yet. We founded http://www.oneview.com as a very early precursor of deli.cio.us, for example.

Web 2.0:
Somewhere around 2003, disgruntled entrepreneurs, the aforementioned PHP Wimps, the Linuxites, and others started reforming and having Galilean Moments („eppure si muove“ – “and the Earth does rotate”). That is what O’Reilly picked up at his conference in Fall 2004 when he coined Web 2.0.

Technology:
On the technology side, Web 2.0 can be oversimplified by describing it as a set of new or renewed technical paradigms:

a) the return of scripting and DHTML.
b) AJAX and the transformation of websites into dynamic applications
c) much faster development speed, prototyping
d) APIs and total interoperability of all digital services (mashups, microformats etc..), the rebirth of standards
e) the end of the concept of “the site”, with functionalities spreading across converging media (web, mobile, TV) instead

Social:
a) You Are Not Alone:
If “Web 1.0” was all about discovering the potential of interactive services, then Web 2.0 is the discovery of the Fellow Users, of the immense potential of finding online people that you can share interests and needs with.

b) You Can Do Things Together / User Generated Content:
New Web 2.0 tools let the vision of the web as a collaborative platform slowly become true: every type of content can be shared, discussed, rated, and messaging allows constant and instant, but also deferred and intermittent interlocution with other users (networking, messaging, Blogging, co-shopping etc…).

c) Mashup Everything / User Generated Functionalities:
The combination of different services, information, and functionalities that the technical paradigm shift of web 2.0 makes possible opens a whole new set of possibilities for networked and collaborative behaviour on the web that creates value from the wisdom of crowds and the knowledge of the few.

Business:
a) Businesses are under pressure and with the opportunity of adapting to the fact that the consumer / customer has an increasingly wide, reliable, and truthful range of sources of information and first-hand experiences with any given product.
b) Creating customer communities becomes increasingly relevant as a business factor. This increases the demand on long-term accountability and trustworthiness of business institutions
c) In the same vein, Business and Media monopolies on information and broadcasting power are dwindling with the advent of increasingly differentiated access to the opinions and knowledge of customers and the creation of increasingly valuable User Generated Content and Community-Based or Collaborative Functionalities. This doesn’t mean a perfect world of truthfulness, but it certainly shifts power to the customer.
d) an open question is by whom and how is this information power, the interlinking of customers, and the long tail of business, going to be aggregated, thus creating the next Googles?
e) On the long tail of business, even the most absurd niche markets can network worldwide, thus creating market volume until now completely untapped.

Web 3.0:
We don’t really need a new term – but it is clear that versioning will somehow be inflationary, since it is such a nifty marketing tool. So we might as well tackle the definition now (and secure some mind share early on, hehe).

In our view, Web 3.0 describes where the different patterns and revolutions might lead to. Think “minority report”, “Neuromancer”, “Matrix”, for early paradigms (not literally of course, we’re between 30 and 1000 years away from that). It is hard to describe and open for discussion, but we see the following trends:

Technology:
a) Interoperability and total convergence of all media and networks to form the Evernet
b) The End of The Site: Functionalities can be used by any user on any device in any network.
c) Everything is mashed or modular or snippeted or microformatted, so that a search on your handheld will deliver a topical article, four experts, seven alternative topical products to be ordered along with their ratings and reviews, three according services and information about what your friends or respected contacts think about the topic, all in one fell swoop.

Social:
a) The rise of the „Digital Boheme“ – in a No Man’s Land between employment, freelance and artistic lifestyle, everyone on the web can “market” whatever talents he has, whenever and however much he wants.
b) Thus, “virtual environments” will play a much bigger role in determining the social status of an individual much more than his geographic environment used to. In other words, the lost liberal hippie tech geek living in, say, Oklahoma suddenly gets a life and recognition – that’s one of the reasons for the hype about Second Life.
c) Thus a) and b) become more and more determining for the identity of the individual – with all due consequences
d) Technology and the networking of individuals and their expertise will lead to an increasingly efficient tapping of the Deep Web (that has been building up since 1974), thus creating a “semantic and human web”, where searching and finding delivers increasingly complex results, ranging from data / documents to Evernet functionalities and sites, to experts and interest groups and events.

Business – we call it VIRAL SOCIAL COMMERCE
In the virtual worlds of the web 3.0 or Evernet, every individual will get a much fairer share of his or her social and economic status. If until now, the consumer was an object of the economy, he increasingly becomes a an active element in every one of his areas of expertise and interests. (Someone who is into handmade puppets from the Münsterland [a region of Northern Germany] can connect to fans of handmade puppets worldwide an be recognized as an expert and set up business selling access, expertise, or even the puppets themselves – if he chooses to do so).

We could call it the Ebaying of life – but the differences to the Ebay model are:

a) it expands virally along social network lines
b) it is not focused on price, and probably not even profit-oriented, but is a blend of social and economic rewards that triggers individual behaviour
c) it is in an elementary sense democratic, with almost any space for very individual definitions of success and lifestyles.
d) thriving in such environments will require new business, communication, and marketing models in almost any industry.

In Science Fiction, the various visions of the emergence of a web interlinking society almost invariably include that web become a determining factor of social and economic status in the real world. We aren’t that far away from that, even if reality always tends to be mundane. What is almost certain is that already today, the web liberates the individual even from very difficult forms of seclusion, allowing him to overcome niche market intransparency and increase his social and economic impact in society.

What we are doing at sevenload (http://www.sevenload.com), itravel (http://www.itravel,de), oneview (http://www.oneview.com) and Qype (http://www.qype.com) is working toward that vision.